Ever wonder how you can secure your financial future while reaping tax benefits today? The National Pension Scheme (NPS) is one of India’s most efficient ways to build a retirement corpus while enjoying a stable income post-retirement.
But what makes it so popular? From attractive tax benefits to consistent market-linked returns, the NPS scheme caters to diverse financial needs. Plus, it’s open to most Indian citizens, making it a versatile option for many. In this blog, we’ll dive into everything you need to know about the National Pension Scheme, including its benefits, eligibility criteria, and the kind of returns you can expect.
What is the National Pension Scheme?
NPS full form is the National Pension Scheme. It is a retirement savings program initiated by the Central Government to promote financial security for individuals after their working years. Available to employees in the public, private, and unorganised sectors (excluding armed forces personnel), the scheme is designed to encourage regular contributions to a pension account throughout one’s employment.
At retirement, subscribers can withdraw part of the accumulated funds, while the remainder is converted into a monthly pension, providing a stable income in later years. Initially, the NPS scheme was mandatory for Central Government employees joining on or after January 1, 2004. Today, it is voluntarily available to all Indian citizens, thanks to the efforts of the Pension Fund Regulatory and Development Authority (PFRDA).
This scheme is especially beneficial for private-sector employees who need a reliable pension plan. With its portability across jobs and locations and tax-saving advantages under Sections 80C and 80CCD, the NPS offers a flexible and efficient way to prepare for a financially secure retirement.
National Pension Scheme Benefits
The National Pension Scheme (NPS) is a popular choice for retirement savings due to its many benefits. Here’s a simple breakdown:
- Higher Returns: NPS offers annual returns of 9%–12%, which is higher than traditional options like PPF. It also allows you to switch fund managers if you’re not happy with the performance of your investments.
- Risk Management: Equity exposure in NPS is capped between 50% and 75%, balancing potential returns with stability. For those over 60, the equity exposure is fixed at 50%, helping protect your savings from market volatility.
- Tax Benefits: You can claim tax deductions up to ₹2 lakh on NPS contributions under Sections 80C and 80CCD(1B). This makes it an excellent tool for tax saving while securing your retirement.
- Regulation and Transparency: NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), ensuring that the scheme follows clear and transparent investment norms. Regular reviews by the NPS Trust ensure security for investors.
- Flexibility: With NPS, you have the flexibility to contribute anytime, choose your NPS contribution amount, and manage your account, even if you switch jobs or move cities.
National Pension Scheme Tax Benefits
The National Pension Scheme (NPS) offers a variety of tax advantages for both employees and self-employed individuals, helping to reduce your taxable income while securing your future. Here’s a breakdown of the key National Pension Scheme tax benefits:
Employee Tax Benefits for Self-Contribution
- Section 80CCD(1) allows you to claim a tax deduction of up to 10% of your salary (Basic + DA), subject to a maximum of ₹1.5 lakh under Section 80CCE.
- You can also claim an additional ₹50,000 deduction under Section 80CCD(1B), beyond the ₹1.5 lakh limit in Section 80CCE.
Tax Benefits on Employer Contributions
- Employers can contribute to your NPS account and you can claim tax deductions on this contribution as well. Employers can deduct up to 10% of your salary (Basic + DA) under Section 80CCD(2).
- For employees working with the Central Government, the employer’s contribution can go up to 14% of salary, which is an increase as per the Budget 2024, effective from April 1, 2025.
Tax Benefits for Self-Employed Individuals
- Self-employed individuals can claim a tax deduction of up to 20% of their gross income under Section 80CCD(1), subject to the ₹1.5 lakh overall limit under Section 80CCE.
- Additionally, self-employed individuals can also claim an extra deduction of ₹50,000 under Section 80CCD(1B).
Tax Benefits on Partial Withdrawal
- You can withdraw up to 25% of your self-contribution from your NPS account without paying tax, provided you meet the conditions set by the PFRDA under Section 10(12B).
Tax Benefits on Annuity Purchase
- When you purchase an annuity or opt for superannuation at the age of 60 or upon retirement, you can claim tax exemption under Section 80CCD(5).
- However, the income received from the annuity will be taxable under Section 80CCD(3).
Tax Advantage on Lump-Sum Withdrawal
- Upon retirement or superannuation at the age of 60, you can withdraw up to 60% of your NPS funds as a lump sum, which is tax-exempt under Section 10.
Corporate/Employer Tax Breaks
- Employers can claim a deduction for their contributions to an employee’s NPS account as a business expense under Section 36(1)(iv)(a), up to 10% of the employee’s salary.
What Are NPS Features?
Here are some key NPS features that make the National Pension Scheme flexible and beneficial for long-term retirement savings:
1. Two Account Types for Flexibility
- Tier I Account: This is the primary account where individuals are required to make a minimum deposit of Rs. 500. It is a pension account that has specific withdrawal restrictions, providing long-term investment opportunities.
- Tier II Account: A voluntary account that allows more liquidity. The minimum deposit for this account is Rs. 250, but it can only be opened if you already have an active Tier I account. This account allows easier access to funds but is still linked to your NPS investment.
2. Investment Flexibility
- Default Option: For subscribers who prefer automatic management of their funds, a default option is available where fund managers allocate investments based on your age profile.
- Active Investment Choice: If you wish to have more control, you can actively choose how to allocate your investments across different asset classes. These include:
- Asset Class E (Equities) with a maximum of 50% of the investment.
- Asset Class C (Corporate Debt Securities).
- Asset Class G (Government Securities).
- Switching Options: You can change your fund manager or investment choices subject to specific constraints.
3. Partial Withdrawal Feature
- Access to Funds Before Retirement: NPS also allows partial withdrawals under specific conditions. A subscriber can withdraw up to 25% of their contribution from the Tier I account after a minimum of 10 years of contributions.
- Withdrawal Conditions: You can only make a withdrawal once every 5 years, ensuring the funds are still growing for your retirement.
NPS Interest Rate
The National Pension Scheme (NPS) offers market-linked returns based on the asset classes chosen for investment. These returns fluctuate due to the nature of equity and debt investments but can provide competitive growth for long-term retirement planning. Below are the current returns based on asset classes for both NPS Tier 1 and NPS Tier 2:
NPS Tier 1 Returns
| Classes of Assets | Returns of 1 Year (%) | Returns of 5 Years (%) | Returns of 10 Years (%) |
|---|---|---|---|
| Corporate Bonds (Class C) | 8.41% – 8.96% | 7.08% – 7.87% | 8.49% – 9.09% |
| Equity (Class E) | 29.76% – 39.38% | 19.37% – 21.53% | 13.06% – 14.33% |
| Alternative Assets (Class A) | 6.89% – 13.39% | 6.23% – 9.47% | N/A |
| Government Bonds (Class G) | 10.83% – 11.31% | 7.45% – 7.75% | 8.97% – 9.74% |
NPS Tier 2 Interest Rate Returns
| Classes of Assets | Returns of 1 Year (%) | Returns of 5 Years (%) | Returns of 10 Years (%) |
|---|---|---|---|
| Corporate Bonds (Class C) | 8.38% – 9.86% | 7.18% – 7.94% | 8.49% – 8.88% |
| Equity (Class E) | 29.86% – 37.94% | 20.04% – 21.19% | 12.83% – 14.41% |
| Government Bonds (Class G) | 9.91% – 11.30% | 7.37% – 7.68% | 8.99% – 9.79% |
Key Points to Note:
- Average NPS Interest Rate (Last 10 Years): The average annual return for NPS over the past decade has ranged between 9% to 12%.
- Impact of Contributions: Higher contributions towards the NPS can significantly increase the retirement corpus due to the power of compounding and long-term market growth.
- Competitive Returns: Compared to traditional investment options, the NPS offers higher returns, making it an attractive choice for retirement planning.
For more detailed information, including updates on NPS returns and conditions, visit the official NPS website.
NPS Pension Calculator
The Paytm NPS pension calculator is a simple tool to estimate your retirement savings and monthly pension under the National Pension Scheme (NPS). By entering your age, monthly contribution, expected returns, and annuity allocation, you can quickly determine your potential corpus and pension. This helps you plan a secure financial future with ease. Explore more on the Paytm NPS Calculator.
What is the Lock-in Period for NPS?
The National Pension System (NPS) has the following lock-in periods and withdrawal options:
- Partial Withdrawal: After 3 years, you can withdraw up to 25% of your own NPS contributions for specific reasons like illness, children’s education, or buying property. You can make up to 3 withdrawals in total during your NPS tenure.
- Premature Withdrawal: After 5 years, you can withdraw up to 20% of your accumulated corpus. The remaining 80% must be used to buy an annuity plan for your pension. If your corpus is under ₹2.5 lakh, you can withdraw the entire amount as a lump sum.
- Normal Withdrawal: When you turn 60 (if you joined NPS before 60), you can withdraw up to 60% of your corpus as a lump sum. The rest must be used for purchasing an annuity. If your corpus is below ₹5 lakh, you can take the entire amount as a lump sum.
- In Case of Death: If the subscriber passes away, the nominee can withdraw the full corpus. They can also choose to purchase an annuity.
Who Should Invest in the National Pension Scheme (NPS)?
The National Pension Scheme (NPS) is ideal for individuals who want to plan for a secure retirement early on. It’s especially suited for:
- Employees with a Low-Risk Appetite: If you prefer a low-risk investment option with the potential for higher returns than traditional schemes like PPF, NPS can offer a balanced approach with a mix of equity and debt investments.
- Private Sector Employees: Since private-sector jobs often lack a built-in pension scheme, NPS offers an attractive way to ensure a regular income post-retirement.
- Salaried Individuals: NPS is beneficial for those who want to take full advantage of tax benefits under Section 80C and 80CCD, making it a smart tax-saving investment option.
- Young Investors: Starting early with NPS can significantly boost your retirement savings over time, making it an excellent choice for those looking to build wealth over the long term.
National Pension Scheme (NPS) Eligibility
The National Pension Scheme (NPS) is open to various sectors with specific eligibility criteria for each model. Here’s an overview:
| NPS Model | Eligibility | Contribution | Details |
|---|---|---|---|
| Government Sector Model | Central & state government employees (excluding armed forces) |
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| Corporate Model |
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Applicable to companies, co-operatives, public sector enterprises, LLPs, partnerships, and trusts |
| All Citizens Model | Indian citizens between 18-60 years, fulfilling KYC requirements |
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Open to all Indian citizens- Allows voluntary enrollment with long-term retirement savings focus |
Types of National Pension Scheme Accounts: Tier-I vs. Tier-II
| Feature | NPS Tier-I Account | NPS Tier-II Account |
|---|---|---|
| Account Type | Default (Required for all NPS participants) | Voluntary (Additional to Tier-I) |
| Withdrawal Rules | Subject to NPS regulations and rules | Flexible, withdrawals allowed at any time |
| Tax Benefits | Up to ₹2 lakh annually under Sections 80C and 80CCD | ₹1.5 lakh for government employees, none for others |
| Initial Contribution Requirement | ₹500 to open the account | ₹1,000 to start the account |
| Ongoing Contribution | Minimum ₹500 monthly or ₹1,000 annually | ₹250 per month |
| Contribution Limit | No upper limit | No upper limit |
| Eligibility | Mandatory for all NPS participants | Available only for those with a Tier I account |
How to Open an NPS Account Online?
Follow these steps to easily open your NPS account online:
Step 1: Visit the NPS online portal to begin registration.
Step 2: Choose your subscriber type—either “Individual Subscriber” or “Corporate Subscriber.”
Step 3: Select your residential status—either “Citizen of India” or “NRI.”
Step 4: Choose your NPS account type. The Tier I account is mandatory, but you can also opt for a Tier II account.
Step 5: Enter your PAN details and select a Point of Presence (PoP), such as a bank, for KYC verification.
Step 6: Upload required documents:
- PAN card
- Canceled cheque
- Photograph
- Signature Ensure all documents are in the required format (JPG, JPEG, or PNG) with a file size of 4KB to 2MB.
Step 7: Make the necessary payment through net banking to cover the registration fee.
Step 8: After completing the payment, you will receive your Permanent Retirement Account Number (PRAN).
How to Open an NPS Account Offline?
To open an NPS account offline, follow these simple steps:
Step 1: Visit your nearest Point of Presence (PoP), which could be a participating bank.
Step 2: Collect the subscriber registration form from the PoP.
Step 3: Submit the completed form along with your KYC documents. If you are already KYC-compliant with that PoP, you can skip this step.
Step 4: Make the minimum initial contribution (Rs. 500, Rs. 250 per month, or Rs. 1,000 annually).
Step 5: After submitting your form and payment, you will receive your PRAN and a welcome kit.
Step 6: There is a one-time registration fee of Rs. 125 for the offline process.
Once you’ve completed these steps, your NPS account will be set up, and you’ll be ready to start contributing for your retirement savings.
Note: Processes and guidelines for NPS account registration are subject to change. Always confirm the latest requirements with authorized sources or Points of Presence.
What is the National Pension Scheme Login Process?
Once you have your NPS account and PRAN (Permanent Retirement Account Number), you can log in through different platforms, such as the NSDL NPS portal, KFintech NPS portal, or even through your net banking account. Here’s how you can log in using the two main portals:
1. Through NSDL NPS Portal
To log in for the first time via the NSDL NPS portal, follow these steps:
Step 1: Visit the official NSDL NPS portal.
Step 2: Click on ‘Login with PRAN/IPIN’.
Step 3: You will be directed to the login page. Select ‘Reset Password’ to create a new password.
Step 4: Enter your PRAN, date of birth, and a new password.
Step 5: Confirm the new password and complete the CAPTCHA.
Step 6: Click Submit to proceed.
Step 7: You will receive an OTP (One-Time Password) on your registered mobile number.
Step 8: Enter the OTP to confirm the new password.
Step 9: After successful confirmation, you can log in using your PRAN and the new password.
2. Through KFintech NPS Portal
To log in for the first time via the KFintech NPS portal, follow these steps:
Step 1: Visit the official KFintech NPS portal.
Step 2: Click on ‘Login’, then select ‘Existing Subscriber’.
Step 3: On the login page, click ‘Generate/Reset Password’.
Step 4: Enter your PRAN, date of birth, and the CAPTCHA code, then click Submit.
Step 5: You will receive an OTP on your registered mobile number.
Step 6: Enter the OTP and set a new password.
Step 7: After successfully creating your password, you can use it to log in to your NPS account.
The National Pension Scheme (NPS) offers a comprehensive, flexible retirement solution for Indian citizens, providing the opportunity for higher returns, tax benefits, and the security of a stable pension. Whether you are a salaried individual, a private-sector employee, or someone seeking better retirement planning, NPS ensures you stay financially secure during your post-retirement years. With options to contribute voluntarily and tax-saving deductions, NPS is an ideal option to start your long-term financial planning.
